June 6th, 2012
in Gary's blogging
Closing Market Commentary For 05-06-2012
I guess one could call this current rise in the markets the beginning of a old fashion 'Summer Rally' and I can't see why we shouldn't have one. I have been forecasting several days up from technical standpoints which I expect to end by Friday and that may be your 'summer rally'. As you can guess I am not really sold on the idea of a resounding rise in the markets in the near future. This is because most of the widely accepted concepts, technical data and my own proprietary indicators are signaling just the opposite. Here are several ideas (of many) of why we probably won't have a summer rally of any significance. Follow up:
The DOW has been lagging in both market movement directions as of late and that is worrisome in relationship to the 40% of income is made in Europe. Sadly none of it returns to the United States to help bolster our own economy. The large caps can't lead a rally with investor unrest and news driven events alone. (Strike one) The small caps as represented by the Russell 2000 was the first to lead the way down and now appears to be leading the way back up. It too, is all over the place not giving credence to investor confidence and one of the first to make a black cross. (Strike two) SPY on the other hand has been the bellwether of sorts moving deliberately, slowly and averaging out the other markets. SPY is currently the leading indicator, for me at least, of where we are and where we are going. The one caveat of using SPY, or any other index, is IF the volume levels continue to be moderate to heavy will they be meaningful.
SPY as we can see in the chart below has not made a black cross yet but will by Friday which is a very bearish signal (- 20 points). However, SPY closed above its 200 day MA yesterday providing bullish nomenclature to the technical aspect of moving higher, which it has done today (+10 points). Also, the resistance at 129.54 was breached today and provides more evidence that the decline of the past 3 sessions has not been completely confirmed as being a trend (+5 points). Since it closed above these points again today add another 5 points.
We should be cognizant that any movement above the 132 area should be considered worrisome for the bears. The thinking behind that statement is the 200 day MA and resistance didn't hold and it is now successfully penetrating an area of moderate resistance which would be very bullish (+10 points). Remember, low volume negates all the above and that DaBoyz are once again in control. The next several session could produce a home run or strike three. Since the EU is at bat I don't have much confidence is seeing a home run much less a base hit.
However, the longer term outlook is not as rosy as today's action or any forecasts might have you believe. David Moenning takes a look at reality verses hope. My opinion is that reality will, sooner rather than later, eventually bring the markets down screwing up whatever summer rally ideas many bulls have hoped for.
Daily State Of The Markets: Hope Versus Reality by David Moenning:
“In case the premise isn't obvious, my hope versus reality analogy refers to the clash between those wearing the rose colored Revo's who, by the way, are investing on the hope that the European debt crisis won't cause a global meltdown, and the gang focused on the reality that the world's economies are slowing. And for those of you keeping score at home, reality seems to be winning at the present time.
Then there is the data. In short, the economic data has been the bears' best friend recently. While it doesn't seem possible, just about every report from every corner of the world has come in WTE (weaker than expected).
"If your outflow exceeds your income, then your upkeep will be your downfall."
My point is that if Ms. Merkel can get the rest of the dysfunctional European family to come together to create a true fiscal union, then hope may indeed be warranted.”
The 'Merde Duo' (Germany PM Merkel and French President Hollande) will NEVER come to terms on what NEEDS to be done as asclepius8 succinctly stated, “No one is addressing the root cause of the problem: too much spending. Don't pump air into a leaking tire. Fix the leak.” Summer Rally? I don't think so, it's more like drinking James Town Kool-Air buying into this rally.
“When the going gets tough, the tough cut the retirement age. New French President Hollande announces he's rescinding Sarkozy's 2010 bump from age 60 to 62. While the reforms could cost the strapped government billions, a cabinet minister says it will be paid for through higher worker and employee contributions.”
Oh yes, this is the right step toward the French designed Kool-Aid wash basin. What a bunch of damn fool Keynesian politicians over there hell-bent to destroy their economy and the EU along with their own stupidity.
The 500 at the close. A strong statement, but closing just below and area that need to be pierced to affirm a rally might be in progress.
The $RUT at the close. Again, the same comment for the Russell 2000.
The DOW at the close. Closing above its resistance is bullish, but I am concerned with a bull trap at this juncture.
The Indexes at the close.
We didn't buy long or short anything today. Tomorrow is USD Continuing Claims (MAY 26) and USD Initial Jobless Claims (JUN 2) both rated low. At 3 pm the USD Consumer Credit (APR) will be announced rated 'medium importance'. I just can't see the markets reacting in a really negative way tomorrow, regardless what the results are.
On Friday, rated medium, the USD Trade Balance (APR) will be announced at 8:30. I have no feelings on how the markets will react to this news. What happens in the EZ will be the market movers. And regardless of the news I predict the markets will move slowly down over the next several months just like the slowly melted up during the January and April time frame.
Between Hilsenrath's humoring, Draghi's 'ready-to-act', and Merkel's 'fold', it appears all-is-well once again in the world.
European banks are soaring - European bank index jumps its most in 5 months. Italian and Spanish sovereign bond spreads compress notably - even as LTRO3 seems to have lost favor with the ECB.
Basis-swaps popped higher, Bund yields rose, Swiss 2Y was flat and Crossover spreads are outperforming.
It seems that markets are pricing in a best-case scenario. EURUSD is oscillating higher but stocks remain notable underperformers over the last few weeks and frankly this feels more like a short-squeeze bounce than a renewed rally as we know all too well that nothing has been solved (even if Germany is caving on Spanish banks).
With the long-weekend and lack of liquidity, it seems markets have simply round-tripped to pre-NFP levels and now it gets interesting - context, as always, is critical.
The laugh for the day is that David Cameron and US president Barack Obama have agreed on the need for "an immediate plan" to resolve the EZ crisis as they prepare meeting in Germany for crisis talks. My guess is that they will threaten Germany PM Merkel with talking her to death! Idiots untie.
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Written by Gary